Construction to Perm Loans
Building a new home is a big commitment requiring time and money. At TEG FCU, we can make things easier for you with our construction-to-permanent financing.
What is a Construction-to-Permanent (CTP) Loan?
A construction-to-permanent loan lets you borrow money to build a home. Our construction-to-permanent loan provides options for:
1. Financing the construction of a new home on your lot.
2. Financing the purchase of a lot as well as the home construction.
When you finish building, it converts to a permanent mortgage. This is a convenient way to get the funds you need to purchase land and construct your home all with one loan and make interest-only payments for a certain amount of time during the construction of the home.
How does a CTP loan work?
Here is a brief overview of what you can expect during the 5 stages of your construction-to-permanent loan.
- Pre-Application Phase – Meet with TEG Mortgage Loan Officer to discuss loan programs and the pre-approval process. Your loan officer will navigate the process with you, outlining the items needed for a formal pre-qualification.
- Application Phase – After all design, specs and price for the home are finalized and the construction agreements are signed, you will complete the loan application.
- Processing and Underwriting Phase – Your project will be reviewed and your loan application, builder approval, appraisal and draw schedule will be finalized. Upon approval, a loan commitment letter is issued and a closing date is set.
- Construction Phase – Construction of your home begins and the builder will request periodic draws as construction funds as per the terms of the agreement. During this time, you make interest-only payments on the amount drawn from the loan.
- Permanent Mortgage Phase – Once you receive your Certificate of Occupancy, the balance of your construction loan is rolled into your permanent financing, and you’ll begin making monthly mortgage payments.
Frequently Asked Questions
What types of properties can I finance with construction and permanent home financing?
Who are the construction funds released to?
Funds may be released directly to the Contractor, Sub-contractor, or Supply Vendors as directed on the draw request. This is dictated by the Request for Advance instructions signed by the Borrower and Contractor.
Can I finance an investment property?
No. The Construction to Perm Loan may only be used with the property that is intended as an owner-occupied primary residence or second home. Our Business Lending department can assist with construction to perm financing for investment properties and builder construction only.
Can a subcontractor or materials supplier file a construction lien against my home?
Yes. Even though you might pay your Contractor, if your contractor does not pay the subcontractors or materials supplier they can file a construction lien against your property.
Can I act as my own general contractor?
No. A qualified general contractor is required to oversee the project.
Who pays for cost overruns during the construction phase?
The Borrower is responsible for paying the overages out of pocket.
Can I start my project before loan closing?
No, you may not start the project before loan closing. An early start may hinder our ability to obtain proper title insurance coverage and may prevent us from closing your loan.
How is interest calculated during the construction phase?
Interest is based on the funds advanced calculated at the note rate for the loan.
Do I have to own my lot prior to closing?
No, you do not. The lot may be purchased simultaneously with the closing of the Construction to Perm loan.
How much will my property taxes be on my completed home?
TEG will use the appraiser’s estimate as to what your taxes will be at completion. Your local tax assessor may be able to answer any further questions.
I paid cash for my lot. Can I get cash back at closing?
No. We consider this equity into the project and credit towards your down payment.
What happens if my project is not completed prior to the maturity of the construction phase?
You may request an extension for your project to allow time to complete construction. If granted, conversion to the permanent phase will take place at the end of your scheduled construction term. A non-interest bearing escrow hold back account will be established to fund the remainder of your project.